On Friday, India officially joined JP Morgan's Government Bond Index-Emerging Markets (GBI-EM). This follows a September announcement, paving the way for substantial financial inflows into the world's fifth-largest economy. Starting today, Indian Government Bonds (IGBs) will be included in the index, initially with a one percent weight. This weight will increase by one percentage point each month until it reaches a maximum of 10 percent by March 31, 2025. Consequently, India will join China, Indonesia, and Mexico, each having a maximum cap of 10 percent in the JP Morgan Global Bond Index - Emerging Market Global Diversified Index.
Since the announcement, foreign investors have already funneled around $10 billion into securities eligible for the index. Goldman Sachs predicts at least $30 billion more in inflows as India's index weighting climbs to 10 percent. This gradual increase is expected to sustain the strength of Indian bond prices.
What is the JP Morgan Emerging Market Index?
The JP Morgan Emerging Market Bond Index (EMBI), established in the early 1990s, is the most widely referenced index for emerging market bonds. It started with the issuance of the first Brady bond and has since expanded to include the Government Bond Index-Emerging Markets (GBI-EM) and the Corporate Emerging Markets Bond Index (CEMBI).
Eligible Indian Government Bonds
Only Indian Government Bonds (IGBs) issued under the Reserve Bank of India's 'Fully Accessible Route (FAR)' are eligible for inclusion in the indices. These bonds must have a minimum outstanding amount of over $1 billion and at least 2.5 years of residual maturity. Therefore, all FAR-designated IGBs maturing after December 31, 2026, qualify for inclusion.
Impact of India’s Inclusion on Financial Flows
India's inclusion in the JP Morgan Emerging Market Global Diversified Index is expected to generate $23.6 billion in inflows into Fully Accessible Route (FAR) bonds. Foreign Portfolio Investor (FPI) holdings of outstanding FAR bonds could increase to 3.4 percent by April/May 2025.
Effects of India’s Inclusion on Other Emerging Markets
The inclusion of Indian government bonds will likely result in reduced weights for Thailand, Poland, and the Czech Republic in the JP Morgan Emerging Market Bond Index over the next 10 months.
Since the inclusion announcement on September 21, 2023, Indian government bonds have attracted $10.4 billion in inflows, compared to just $2.4 billion in the first eight months of 2023, and annual foreign outflows of around $1 billion in 2021 and 2022. India's entry into JP Morgan's GBI-EM marks a significant milestone for the country's financial markets, heralding increased investment and potentially greater stability for Indian government bonds.
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